Posted: Friday, 3 September 2010

How it works

The best way to help today’s workers save enough for retirement is by increasing what everybody gets from the Canada and Quebec Pension Plans. The Canadian Labour Congress is proposing a gradual doubling of future benefits. A modest increase in contributions will produce thousands of dollars a year in extra benefits for workers when they retire.

There is no longer any excuse for delaying improvements to the CPP.  Let’s get the job done.

Additional savings required from workers to double future CPP benefits

Labour's plan to double future CPP benefits involves increasing the amount that workers currently save through CPP contributions by increasing what everyone contributes to their CPP savings by about 0.43% of pensionable earnings each year for 7 years.

What does this mean for the average worker?

For a worker earning $47,200 or more per year, the initial cost of gradually doubling future CPP benefits works out to about 9 cents an hour, or $3.57 a week. That's less than the cost of a newspaper subscription.

For a worker earning $30,000 per year, the initial cost would be about 6 cents an hour, or $2.27 a week. That's less than the cost of a medium double-double with a donut at Tim Hortons.

Please note that annual salary here is converted to an hourly rate by dividing it by 52 weeks and then by 40 hours a week or 8 hours a day. This corresponds to 173.3 hours of work per month.

CPP contributions for workers with Labour's Plan:

Increase in CPP contributions, each year for seven years.

The CPP covers 93% of employed Canadian workers (essentially the entire labour force), is portable from job to job across provinces and keeps up with the cost of living. The CPP is financed exclusively by workers and their employers and it operates independently at no cost to government. The CPP provides first-rate retirement savings at a low cost. It is safe, secure, and indexed and its management costs are lower than those charged by the private financial services institutions on RRSPs.

We are pleased that a national campaign waged by the labour movement and citizens' groups for improvements to the Canada and Quebec Pension Plans is paying off. The federal and provincial Ministers of Finance agreed in principle on June 14, 2010 to a modest CPP expansion. The Federation of Canadian Municipalities has also called for improvements to the CPP. Now let’s get the job done.

Future CPP benefits (with and without labour’s plan)

The following amounts are in addition to whatever a worker has already saved through CPP contributions since age 18, if any, and it shows the effect of labour's plan on future retirement income.

• With labour's plan, a worker who is 28 years old and works full-time from now until retirement at age 65 (37 years of expanded contributions) would earn a monthly CPP payment of about $1,772. Without labour's plan, the same worker's monthly CPP payment would only be about $886.
• With labour's plan, a worker who is 38 years old and works full-time from now until retirement at age 65 (27 years of expanded contributions) would earn a monthly CPP payment of about $1,293. Without labour's plan, the same worker's monthly CPP payment would only be about $646.
• With labour's plan, a worker who is 48 years old and works full-time from now until retirement at age 65 (17 years of expanded contributions) would earn a monthly CPP payment of about $814. Without labour's plan, the same worker's monthly CPP payment would only be about $407.
• With labour's plan, a worker who is 58 years old and works full-time from now until retirement at age 65 (7 years of expanded contributions) would earn a monthly CPP payment of about $335. Without labour's plan, the same worker's monthly CPP payment would only be about $175.

Notes:

These figures assume that none of these workers draws a CPP pension before age 65 and will make contributions based on annual earnings equivalent to $47,200 in 2010 (which is the maximum pensionable earnings for 2010).

Labour's plan for the CPP operates on a fully pre-funded basis. The expansion of future CPP benefits would occur on a go-forward basis and would be based on the number of years each worker is able to save more through expanded contributions.

Please consult the CLC’s online pension calculator  to see how labour’s plan would boost CPP pensions at age 65 for workers of varying ages or income levels.